World-Class Manufacturers

To be world class requires an overall willingness to establish closer connections with everyone from customers and suppliers to workers, an unwavering commitment to self-analysis and improvement, and an aggressive approach to technologies that can help turn visionary strategies into gold-medal realities.

If you're a musician or other type of artist, it means having the ability to ply your chosen craft with unparalled passion and precision. If you're an athlete, it could mean being able to run faster, jump higher, or hit harder than your opponents. But what if you're a manufacturer?

In this arena, too, it's surprising the extent to which similar criteria can be applied. Only instead of measuring success in terms of blue ribbons won or baseballs knocked out of the park, companies look to metrics such as quality certifications achieved, turn-over rates improved, and productivity levels boosted.

A more crucial distinction, though, is that while a soprano or slugger might be able to rely on standout solo performances to build a world-class reputation almost single-handedly, manufacturers must rely on teamwork to get the job done. Indeed, probably the most important lesson revealed by the Second Annual IndustryWeek Census of Manufacturers is that when it comes to working at the world-class level, separating yourself from the pack takes much more than a focus on one or two bottom-line statistics.

Rather, it requires an overall willingness to establish closer connections with everyone from customers and suppliers to workers, an unwavering commitment to self-analysis and improvement, and an aggressive approach to technologies that can help turn visionary strategies into gold-medal realities. If meeting such requirements sounds like a tall order, it is.

In fact, of the 316 respondents who participated in the IW Census' corporate-level (telephone) survey, just 5.1% say their organizations have fully achieved world-class status. The total proportion of phone-survey respondents whose corporations have either achieved or made significant progress toward this milestone, on the other hand, is 52.9%. In comparison, the corresponding ratio among the 2,102 plant-level respondents who answered this question was 39.5%, a figure whose modesty could be explained by the fact that plant-level leaders may have a clearer view of what's happening in the trenches.

At this point, it's important to note that respondents' answers to the question of how far they've come with respect to world-class status in themselves reveal little about the nature of world-class manufacturing. That's because respondents to both the corporate and plant-level questionnaires were given no objective criteria by which to gauge their performance in this regard.

Instead, they were required to assess their own achievements by selecting one of four progress levels: fully achieved, significant progress, some progress, or no progress (a category into which 7.7% of the plant survey's participants fell). And as everyone knows, it's one thing to say you're world-class. It can be quite another to support this contention with superior performance.

According to the IW Census, though, respondents who say their organizations have achieved world-class status generally are able to put their metrics where their mouths are. In other words, participants who judge themselves to be at or near the pinnacle exhibit higher levels of involvement with big-picture initiatives such as those that relate to process improvement, total quality management (TQM), and supply-chain logistics. These efforts in turn drive better benchmarks across the board.

Building Relationships

One of the survey's most instructive revelations involves the level of interdependence both up and down the supply chain that characterizes the operations of organizations that report having achieved or nearly achieved world-class status.

"World-class plants are no longer guessing what satisfies their customers, but are listening to their needs and striving to meet customer expectations in areas such as service, delivery, and quality," says Pricewaterhouse-Coopers LLP consultant Carrie Riker.

Indeed, plant-level data show that 47% of respondents who say they've achieved world-class status use customer-satisfaction surveys extensively, while the proportion of their peers in the no-progress category who do the same is just 6.4%. Of the total plant survey sample, 22.4% use this tool extensively. It's no surprise that 41.5% of the fully world-class plants have extensively implemented JIT relationships with their key suppliers.

By contrast, the proportion of plants reporting no progress toward the world-class level who have implemented these capabilities to the same degree is just 7.6%. The corporate survey likewise found that 38.3% of respondents in the significant-progress and fully achieved categories use JIT deliveries from key suppliers versus 21.8% in the remaining two categories.

By the same token, both corporate and plant-level respondents who claim their operations are world-class are considerably more likely than their less-advanced counterparts to be heavily involved with programs that contractually commit suppliers to annual cost cuts, as well as to efforts that involve suppliers early in new-product development. As with their customers and suppliers, organizations at the upper end of the world-class continuum invest comparatively more in their relationships with their workers.

Nowhere is this pattern more evident than in the difference between the amounts of formal training received annually by each employee at plants whose leaders state that they are fully world-class and at those of their peers who made no progress in that regard. Specifically, 41.9% of plants in the former category provide their workers with more than 41 hours of training apiece versus a mere 4.4% of plants in the latter grouping. With a similarly high proportion of plants claiming full world-class status reporting that at least half of their workforces participate in empowered or self-directed teams, it comes as no shock that the fully achieved plants' labor-turnover rates are easily the lowest in the survey.

"A great deal of emphasis is placed on technology, equipment, and processes -- and rightfully so," observe Riker and fellow PricewaterhouseCoopers consultant Jamie Chevalier. "However, one very important ingredient of business success is often overlooked: people. Employees are still involved in a variety of activities, including operating machines, performing services, conducting analyses, and assembling parts."

If these findings suggest that the world-class organization tends to function as a contented extended family, other data imply that it's a large one as well. Internally speaking, workforce size bears a fairly strong correlation to perceived world-class status, with plants farthest along in this regard being the most likely to employ 500 or more workers. They also are least likely -- by a margin of nearly 20 percentage points relative to plants in the no-progress category -- to be independently owned.

Regarding the industry sectors served by plants whose leaders responded to the Second Annual IW Census of Manufacturers -- as represented by two-digit Standard Industrial Classification codes -- results varied little from those of the inaugural IW Census. The categories with the highest proportions of respondents claiming significant progress toward or full achievement of the world-class level (and sample sizes of at least 50) in the IW Census are transportation equipment, 53.8%; electronic and electric equipment, 47.8%; and primary metals, 44.3%.

Pursuing Quality

Another key characteristic of organizations farthest along the road to world-class status is the emphasis that they -- and their customers, apparently -- place on quality.

For starters, when plant-level respondents were asked to identify which from a list of six competitive attributes they believe to be most important to their customers, 44.7% of those who say they've fully achieved world-class levels selected this attribute, while just 18.8% in the same category of respondents picked low cost.

Corporate-level participants responded to the same question similarly, with a full 40.7% of respondents from the group who say they have made significant progress toward or fully achieved world-class status selecting high quality as the most important competitive differentiator in the eyes of their customers (in the no-progress to some-progress areas, this figure totaled 28.6%).

World-class operators' concern for quality also is evident in the area of manufacturing practices, with the utilization of TQM techniques proving to be the most striking differentiator between the actions of fully achieved and no-progress plants. Consistent with that conclusion is the level of attention that world-class organizations devote to company-wide initiatives. In this regard, formal programs aimed at continuous improvement and quality management proved especially important, as world-class respondents were more likely to report extensive implementation of both these initiatives.

"One of our key insights into the data was that the old formulas still make sense," says Paul Accordino, PricewaterhouseCoopers principal consultant.

Although TQM, continuous improvement, and supply-chain streamlining no longer may garner the headlines they once did, he explains that such initiatives are "blocking and tackling-type practices that you need to do throughout your organization and at all plants. And you need to do them well, not just give them lip service," because these efforts allow an organization to respond quickly to change.

Embracing Technology

Sound business practices and processes also can provide world-class organizations with a solid foundation upon which to add advanced technologies. In this area, it stands to reason that upper-echelon operators would exhibit significantly more interest than survey respondents at the other end of the spectrum in high-profile technologies such as those relating to the Internet. And they do.

More surprising, though, is the level to which world-class respondents to the plant-level survey in particular have embraced technologies such as computerized maintenance management and computer-integrated manufacturing. When the proportion of world-class respondents who reported implementation of these technologies was compared with the implementation levels of their counterparts who have achieved no progress, each technology showed a gap of nearly 50 percentage points.

"Maybe that's how [world-class companies] are sneaking ahead of the rest," Accordino observes. "They're using some of these less extensively implemented technologies" to help shift their workers' focus from number-crunching to value-added functions.

Achieving Performance

With technological and other advantages on their side, companies whose representatives feel their organizations are at or near the world-class standard clearly posted the survey's strongest results. Figures related to first-pass quality yields, for example, favored plant-level respondents who feel they are already world-class. Scrap and rework costs as a percentage of sales follow a similar pattern, as do numbers relating to improvements in first-pass quality yields.

At the same time, the corporate-level survey underscores the importance to manufacturing's elite of making continual, quantifiable gains in metrics such as those pertaining to product-development cycles and primary-product market shares. Analysis of data gleaned in the latter area reveals that while the total percentage of respondents in the no-progress to some-progress categories who have made gains of 1% or more is 59.2%, the corresponding figure among respondents who ranked their organizations in the more advanced categories is 72.4%. These findings bring to light perhaps the most reliable indicator of a company's world-class status: its ability to shine in the marketplace.

World-class What does it mean?

World-class means many things to many people. This makes defining the term like trying to define beauty. Because of the mountains of metrics now used to gauge companies' performance and the strategic and other nuances that must be interpreted, an overall encompassing formula to determine whether or not an organization makes the world-class cut is difficult to come by. What the Second Annual IndustryWeek Census of Manufacturers did reveal, however, was data showing that companies that say they are world-class generally are performing at the highest levels -- particularly with respect to quality metrics. This fact allows Paul Accordino, a principal consultant with PricewaterhouseCoopers, to advance the position that "in our view, world-class companies are the top performers, and they're the extensive implementers of the key manufacturing practices" that help drive superior results. One organization that would agree with this statement is Cypress Semiconductor Corp., San Jose, a respondent to the Second Annual IW Census. "Being world-class in manufacturing is all about productivity and being resource-efficient," says Bernard Glasauer, the company's vice president of engineering. In a high-volume environment such as semiconductor manufacturing, Glasauer stresses the importance of implementing information technologies that can help identify production-related problems as early as possible, and also of training and empowering one's workforce to act upon information of this type while the investment in product is minimal. In Cypress' case, he states, "The real key is to not be stuck finding out something by surprise" at a packaging plant that could have been addressed at the fabrication stage. Another vital component of world-class manufacturing is adaptability. "I see flexibility for change and the ability to meet customer requirements as far as delivery times and quality of products to be parts of world-class manufacturing," says Scott Huber, polymer production manager with Adhesives Research Inc., Glen Rock, Pa. To satisfy these criteria, his company has cross-trained its 312-person workforce intradepartmentally, with interdepartmental training soon to follow. As Huber's comments imply, being world-class has perhaps as much to do with tangible measures as intangible ones. One survey respondent who would support this contention is Jane Samia, operations manager for Alcan Cable's 150-worker Roseburg, Oreg., facility. When Alcan Cable's parent company, Alcan Aluminum Ltd., Montreal, Que., introduced the concept of world-class manufacturing company-wide around 1992, she explains, "it was an alphabet-soup recipe in terms of TQM, JIT," and other then-popular acronyms. However, Samia believes this definition omits considerations for the esprit de corps that characterizes top-notch organizations. "For our plant," she says, "it's just this certain enthusiasm that our employees have about satisfying the customer and being the best that we can be" in areas ranging from manufacturing costs to worker safety. "It's almost like a feeling. You can tell when you walk through a plant if people have it or not. That's what world-class manufacturing is all about."